A Flexible Stay for a Hotel Franchisee

Teresa Matsui Sanders recently switched brand names of the hotels she manages to Americas Best Value Inn from Super 8, including the one above in Burnsville, Minn. Credit
T. C. Worley for The New York Times

AS the president of InnWorks, a Minnesota company that manages hotels in 10 states, from Arizona to North Carolina, Teresa Matsui Sanders knows a lot about the franchise agreements that bind hotel owners to national brands.

“They’re harder to get out of than most marriages, and much more costly,” Ms. Sanders said.

Until recently, her hotels were covered by 20-year agreements with the Wyndham Hotel Group, one of the largest hotel franchisors in the world. The agreements allowed the hotels to use the Wyndham brand name Super 8.

But as the contracts expired in the last few years, Ms. Sanders said that she was reluctant to renew them. Too much has changed since the 1980s, when Wyndham was a small company and, she said, “I could get any of the principals on the phone.” With hotel companies changing hands regularly, “it’s hard to imagine committing to a 20-year alliance with anyone,” she added.

A spokesman for Wyndham, Richard Roberts, said that all of the company’s brands require franchisees to sign up for a minimum of 15 years, except for Knights Inn, which offers three-year agreements. Asked about Ms. Sanders’s properties, Mr. Roberts said: “We consider details of our relationships with individual franchisees to be a private business matter. Anyone who wants to affiliate with Wyndham does so at their own initiative. The fact is there are 6,500 hotels in our system for a very good reason: We deliver value to our franchisees.” The brands also include Days Inn, Ramada and Howard Johnson.

Ms. Sanders, though, has moved 17 of her 18 hotels to a new brand, Americas Best Value Inn. The company has broken ranks with its competitors by offering franchise agreements that are renewable each year.

Offering an alternative to the industry’s traditional 20-year contracts has helped make Americas Best Value one of the fastest-growing lodging chains. Nine years after it was founded, its name is on some 800 hotels — nearly all of which once waved other companies’ flags.

The company’s chief executive and president, Roger Bloss, sounds a populist message, calling Americas Best Value “a membership association” and allowing franchisees to vote on company policies, from what kind of shampoo to offer to how much they will pay in fees.

Mr. Bloss said he stays in his company’s hotels as he travels the country with his daughter, Natalee, 12, who plays softball, and he is available to the hotel’s owners on his cellphone. (Because the headquarters of the company — part of the Vantage Hospitality Group — is in Coral Springs, Fla., and he works out of a Los Angeles suburb, management is reachable several extra hours a day, he said.)

Even after deciding to give up the Super 8 affiliation, Ms. Sanders was concerned that business might suffer. “There have been good and bad results,” she said.

Photo

She now has the option of renewing her franchise agreement each year.Credit
T. C. Worley for The New York Times

At hotels along interstate highways — where most of the guests are walk-ins — “losing the Super 8 name did hurt us,” she said, although name recognition is improving as Americas Best Value opens more hotels nationwide. But hotels in destination locations — where people tend to book in advance — are doing as well as they did when they were Super 8s.

In some cases, she said, she has actually been able to raise rates. “People see a Super 8, and they’re only willing to pay so much, no matter how nice a hotel it is,” she said.

Another brand that is shortening the term of its franchise agreements is Rodeway Inn, which is owned by Choice Hotels International. According to Jason Cowan, one of the company’s franchise sales executives, Rodeway allows new franchisees the chance to terminate contracts at the end of each year. “In essence it’s a one-year term, just renewable 20 times,” Mr. Cowan said.

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The idea of offering the easy-out contract, he said, was to “grow the brand” at a time when the number of Rodeways appeared to have leveled off. “We did it because in the economy segment, people were looking for a little more flexibility in their franchise agreements,” he said.

The approach “is doing extremely well,” Mr. Cowan said, noting that the number of Rodeways has doubled, to about 300, since the company modified the contract in 2004. He says Rodeway has managed to retain many of its franchisees, and that few, if any, exercised the escape clause.

Still, no one is surprised when a hotel changes brands, especially at the end of a contract. “It’s an ongoing churn,” said Ed Watkins, the editor of Lodging Hospitality magazine. “A typical hotel is probably going to have two, three or more brand names in its lifetime. Either the hotel no longer fits the physical requirements of the chain, or the owners have found what they think is a better franchise for that property.” The Web site of Lodging Hospitality includes a “franchise calculator” that helps hotel owners compute the costs of signing with various brands.

Mario L. Herman, a Washington lawyer who represents franchisees, said the 20-year contracts that are common in the hotel industry would be considered long in other businesses. But given the enormous investment required to open a hotel, he said, some of his clients prefer the long-term contracts.

Generally, he said, hotel chains can drop franchisees when their contracts expire. If a chain is looking to upgrade, a hotel might have to undertake renovations to qualify for a new contract. Ms. Sanders said that to renew their Super 8 contracts, her hotels would have had to replace exterior materials, add more dividers and planted areas to their parking lots, and install breakfast rooms. “We were coming in with price tags of $200,000 to $400,000 per hotel for improvement that no one could prove would increase revenues,” she said.

By switching to Americas Best Value, Ms. Sanders said that she also reduced the fees the hotel pays its franchisor. Americas Best Value charges hotel owners 4 to 6 percent of revenue, she said, which is about half the industry average. In exchange for those fees, hotel owners receive the benefits of national marketing and advertising.

And because of the switch, she said, “my life is better now.” The reason isn’t just that she likes the company. It’s also that she can leave the company at a time of her choosing.

A version of this article appears in print on , on Page BU22 of the National edition with the headline: A Flexible Stay For a Hotel Franchisee. Order Reprints|Today's Paper|Subscribe